All major US lenders have been given the Fed's seal of approval when it comes to their ability to withstand a severe financial crisis. But large investment banks did worse in the annual stress test.
The US Federal Reserve said the country's 31 largest banks had all passed the first part of its annual stress test, which simulates the lenders' ability to withstand a financial crisis.
But some larger institutions were found wanting in the central bank's most severe hypothetical scenario, in which loan losses at the 31 participating bank holding companies would total $340 billion over nine quarters.
"Higher capital levels at large banks increase the resiliency of our financial system," Federal Reserve Governor Daniel Tarullo said. "Our supervisory stress tests are designed to ensure that these banks have enough capital that they could continue to lend to American businesses and households even in a severe economic downturn."
All the banks showed they would be able to maintain more than the minimum 5.0 percent level of core capital in the event of a financial crisis more severe than that of 2008.
But the three leading investment banks Goldman Sachs, JPMorgan Chase and Morgan Stanley were among the worst performers. Goldman's Tier 1 capital ratio fell to 6.3 percent, JPMorgan 6.5 percent, and Morgan Stanley 6.2 percent
The Fed has conducted stress tests for the largest banks since 2009, when confidence in the financial sector was badly hit by the world financial crisis. The government intervened to bail out several of the largest banks.
The second part of the stress test is set to be published next week. It will determine whether the Fed will allow to increase dividends or buy back shares.
sgb/uhe (Reuters, AP, AFP)